Bullowa v. Thermoid Co.

• Decision Date: 10 January 1935
• Docket Number: No. 139.,139.
• Citation: 176 A. 596
• Parties: BULLOWA v. THERMOID CO.
• Court: New Jersey Supreme Court

176 A. 596

BULLOWA

v. THERMOID CO.

No. 139.

Court of Errors and Appeals of New Jersey.

Jan. 10, 1935.

[Copyrighted material omitted.]

Appeal from Supreme Court.

Action by Ralph J. M. Bullowa against the Thermoid Company. The complaint was struck on defendant's motion (173 A. 925, 12 N. J. Misc. 608), and, from the consequent judgment, plaintiff appeals.

Reversed and remanded.

John E. Selser, of Hackensack, for appellant.

Louis Rudner, of Trenton, for respondent.

HEHER, Justice.

Plaintiff sued to recover the principal of two five-year sinking fund gold notes, each in the sum of $1,000, issued by the defendant corporation on February 1, 1929, payable on February 1, 1934, with interest at 6 per cent. in semiannual installments, and now held by him. These notes were issued under an indenture of trust, bearing even date, made by the obligor to the National Bank of Commerce in New York (now merged in the Guaranty Trust Company of New York) as trustee. The total authorized issue was $3,000,000, and the actual issue $2,847,500—all maturing on the day mentioned.

The complaint was struck out on the ground that plaintiff did not, under the provisions of the trust indenture, have a right of action enforceable directly against the obligor, and from the consequent judgment this appeal was taken.

The primary inquiry is whether the noteholder is vested, upon the normal maturity of the obligation, with a right of action at law thereon, unless and until the trustee shall refuse or neglect, as provided in section 8 of the trust indenture, to institute appropriate proceedings, by way of remedy, within a reasonable time after request made by the holders of 25 per centum in principal amount of the notes then outstanding.

It is suggested by appellant, in limine, that the notes express on their face an absolute and unconditional promise to pay the principal sum thereof to the holder at maturity, and that the holder is not bound by provisions of the indenture imposing a restriction upon his right to enforce the obligation on the day of maturity so expressed therein, unless notice thereof, in reasonably clear language, is contained therein. The principle that any inconsistency between the note and the indenture must be resolved in favor of the noteholder is invoked. Enoch v. Brandon, 249 N. Y. 263, 268, 164 N. E. 45; Rothschild v. Rio Grande Western R. Co., 84 Hun, 103, 110, 32 N. Y. S. 37, affirmed 164 N. Y. 594, 58 N. E. 1092; Cunningham v. Pressed Steel Car Co., 238 App. Div. 624, 265 N. Y. S. 256. Here, it would seem, the note explicitly incorporated, by reference, the provisions of the indenture into the obligation. Aside from references to specific provisions of the indenture, relating to taxes imposed upon the holder of the note, as such, the sinking fund thereby created for the noteholders, the terms upon which the notes are callable, and the rights of the noteholders in event of a default in the performance of the contractual obligation, each note contained the declaration that it was one of an authorized issue of notes of the obligor, under the trust indenture referred to, "to which indenture reference is hereby made for the terms and conditions on and under which the notes have been or are to be issued and the nature and extent of the rights of the holders of the notes, of the company and of the trustee." Thus the holder of the obligation was clearly put upon notice that the indenture itself declares the "nature and extent of the rights" of the noteholders, the obligor, and the trustee. But it is unnecessary to pursue this inquiry. Assuming that the terms and provisions of the indenture are binding upon the noteholders, they do not restrict the right of individual action upon the obligation at the normal, as distinguished from an accelerated, maturity thereof.

The promise to pay the principal sum on February 1, 1934, contained in the note, is absolute and unconditional, and the covenantor must, of necessity, respect that obligation, unless it is modified by the terms of the indenture. Defendant asserts such modification by virtue of the provisions of section 8 thereof. It is in the language following:

"Section 8. In order to promote and protect the equal and ratable rights of every holder of the notes and to avoid multiplicity of suits, all the notes shall be subject to the condition that all rights of action thereon, or in respect thereof, or on or in respect of the coupons thereto appertaining, are vested exclusively in the Trustee, and that no holder of any of the notes or coupons appertaining thereto shall have any right to institute any action, at law or in equity, upon the notes or any of the appurtenant coupons, or growing out of any provision thereof, or of this indenture, or for the enforcement of this indenture, unless and until the Trustee shall refuse or neglect to institute proper proceedings by way of remedy within a reasonable time after request of the holders of twenty-five per cent in principal amount of notes then outstanding, filed with the Trustee, with an offer of satisfactory indemnity; and any recovery in any action or proceeding instituted by the holder of any of the notes or appurtenant coupons shall be for the equal pro rata benefit of all outstanding notes similarly situated, and, for the protection and enforcement of this Section 8, each and every noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity; provided, however, that nothing herein or elsewhere in this indenture or in the notes or in the coupons shall affect or impair the obligation of the Company, which is unconditional and absolute, to pay at the date of maturity therein expressed the principal of the notes and the interest thereon to the respective holders of the notes and coupons at the time and place in the notes and coupons expressed, or affect or impair the right of action, which is also absolute and unconditional, of such holders to enforce such payment or shall affect or impair the right of the owner of any warrant to enforce the provisions thereof as provided by the terms of Section 10 of Article II hereof."

Respondent points to the provision that "all rights of action" upon the notes "are vested exclusively in the trustee," and that the noteholder shall not have a right of action upon his obligation unless the trustee "shall refuse or neglect to institute proper proceedings by way of remedy within a reasonable time after request" so to do, made by the holders of 25 per centum in principal amount of the notes outstanding, with an offer of satisfactory indemnity. But this clause is explicitly limited and qualified by the proviso that nothing therein contained shall "affect or impair the obligation of the company, which is unconditional and absolute, to pay at the date of maturity therein expressed the principal of the notes and the interest thereon to the respective holders * * * at the time and place in the notes and coupons expressed, or affect or impair the right of action, which is also absolute and unconditional, of such holders to enforce such payment * * *" The essential question, therefore, is to determine the scope and effect of this proviso.

In this inquiry we are guided by well-established rules of interpretation. The ascertainment and effectuation of the intention of the parties, as manifested by the language employed and the objects to be accomplished, are the ends to be served in the interpretation of written agreements. The standard of interpretation of an integrated agreement, such as this, is, with certain qualifications not here pertinent, the meaning that would be attached to the integration by a reasonably intelligent person. Corn Exchange National Bank & Trust Co. v. Taubel, 113 N. J. Law, 605, 607, 175 A. 55. The general purpose of the contract, as expressed by the words and other manifestations of intention employed, when read and considered as a whole, is the thing sought. Effect, if possible, will be given to all parts of the instrument, and a construction which gives a reasonable meaning to all its provisions will be preferred to one which leaves a portion of the writing useless or inexplicable; and, if this is impossible, a construction which gives effect to the main apparent purpose of the contract will be favored. The freedom of construction permissible is, however, necessarily limited by the principle that unexpressed intention is of no legal effect. Where there is a repugnancy between the general clauses and specific ones, the latter will govern; and, even if there is no actual repugnancy, taking the words of the contract literally, and from the whole instrument it appears that the purpose of the parties was solely directed to the particular matter to which the special clause or words relate, the general words will be restrained. Williston on Contracts, § 619; 13 C. J. 535. A construction that will void a clause of the contract for repugnancy, or the entire instrument for uncertainty, is to be avoided, if possible. Where the provision does not destroy the original covenant, but leaves a portion of it remaining, it is not void for repugnancy. Williams v. Hathaway, 6 Ch. D. 545, 549.

Applying these principles, we have no difficulty in determining the general plan and purpose contemplated and expressed in this instrument. A right of action is vested in the trustee. In the event of an intermediate default, the right of action, in the first instance, is vested exclusively in the trustee. These "events of default" are expressly declared by the indenture to be: (1) A default in the payment of any installment of interest on any of the notes, and a continuance thereof for...